<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
EMUSIC.COM INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (set forth the amount on which filing
fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
EMUSIC.COM INC.
1991 Broadway, 2nd Floor
Redwood City, California 94063
October 26, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 annual meeting of stockholders
of EMusic.com Inc. to be held on November 19, 1999, at 9:00 a.m. local time, at
the offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo
Alto, California 94301.
The annual meeting will begin with a discussion and voting on the matters
set forth in the accompanying Notice of Annual Meeting and Proxy Statement and
on other business properly brought before the meeting, followed by a report on
our financial and operating performance.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE IN
ORDER THAT AS MANY SHARES AS POSSIBLE MAY BE REPRESENTED AT THE MEETING.
The vote of every stockholder is important and your cooperation in promptly
returning your executed proxy will be appreciated. Each proxy is revocable and
will not affect your right to vote in person in the event that you decide to
attend the meeting.
Sincerely,
/s/ GENE HOFFMAN, JR.
Gene Hoffman, Jr.
President and Chief Executive
Officer
<PAGE>
EMUSIC.COM INC.
Notice of Annual Meeting of Stockholders
to be held on November 19, 1999
Dear Stockholder:
The annual meeting of stockholders of EMusic.com Inc. will be held at the
offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto,
California 94301, on November 19, 1999, at 9:00 a.m. local time, for the
following purposes:
1. To elect two (2) Class I Directors to hold office for a three-year term
and until their successors are elected and qualified.
2. To ratify the selection of PricewaterhouseCoopers LLP as our independent
accountants for the fiscal year ending June 30, 2000.
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which accompanies this Notice.
The Board of Directors has fixed the close of business on October 19, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at this annual meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ Peter M. Astiz
Peter M. Astiz
Executive Vice President, General
Counsel and Secretary
Redwood City, California
October 26, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK
OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the Board of Directors of EMusic.com
Inc., a Delaware corporation ("EMusic"), for use at the annual meeting of
stockholders to be held on Friday, November 19, 1999 at 9:00 a.m., local time,
or at any adjournment thereof. The meeting will be held at the offices of
Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California
94301. Our principal executive offices are located at 1991 Broadway, 2nd Floor,
Redwood City, California 94063. Our telephone number is (650) 216-0200. The
date of this Proxy Statement is October 26, 1999, the approximate date on which
the Proxy Statement and form of proxy were first sent or given to stockholders.
OUTSTANDING SHARES AND VOTING RIGHTS
Solicitation of Proxies. This solicitation of proxies is made on behalf of
the Board of Directors of EMusic and the cost thereof will be borne by EMusic.
In addition to soliciting stockholders by mail through its regular employees,
we will request banks and brokers, and other custodians, nominees and
fiduciaries, to solicit their customers who have stock of EMusic registered in
the names of such persons and will reimburse them for their reasonable, out-of-
pocket costs. We may use the services of our officers, directors and others to
solicit proxies, personally or by telephone, without additional compensation.
Voting Securities. On October 19, 1999, EMusic had approximately 34 million
outstanding shares of common stock held by approximately 205 stockholders of
record, all of which are entitled to vote as a single class with respect to the
proposals presented in this Proxy Statement. Each stockholder of record at the
close of business on October 19, 1999 is entitled to one vote for each share
held. Our bylaws provide that a majority of all shares entitled to vote,
whether present in person or by proxy, will constitute a quorum for the
transaction of business at the meeting.
Voting of Proxies. Any person giving a proxy pursuant to this solicitation
may revoke it at any time before it is exercised by delivering to EMusic's
Secretary a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person. If an executed
proxy is submitted without any instruction for the voting of such proxy, the
proxy will be voted in favor of the proposals described.
1
<PAGE>
INFORMATION ABOUT EMUSIC
Management
The section sets forth the names, ages and backgrounds of EMusic's directors
and executive officers, including the individuals nominated to be elected to
serve as directors of the Company at the annual meeting.
<TABLE>
<CAPTION>
Director
Name Age Position(s) Since
---- --- ---------------------------------------------------- --------
<S> <C> <C> <C>
Robert H.
Kohn*+...... 42 Chairman and Assistant Secretary 1998
Gene Hoffman,
Jr.*........ 24 President, Chief Executive Officer, and Director 1998
Joseph H.
Howell*..... 47 Executive Vice President and Chief Financial Officer
Peter M.
Astiz*...... 41 Executive Vice President and General Counsel
James
Chapman*.... 32 Vice President, Corporate Strategy
Tor Braham+.. 42 Director 1999
Ralph Peer,
II.......... 55 Director 1998
Ed
Rosenblatt.. 64 Director 1999
</TABLE>
- --------
* Executive Officer
+ Nominee
Robert H. Kohn, a co-founder of EMusic, has been Chairman of the Board and
Secretary since January 1998. From October 1996 to December 1997, Mr. Kohn was
Vice President, Business Development and General Counsel of Pretty Good
Privacy, Inc., a developer and marketer of Internet encryption and security
software. From March 1987 to September 1996, he was Senior Vice President of
Corporate Affairs, Secretary, and General Counsel of Inprise Corporation
(formerly Borland International, Inc.), a developer and marketer of personal
computer software. Mr. Kohn also served as chief legal counsel for Ashton-Tate
Corporation. Prior to Ashton-Tate, he was an attorney at the Beverly Hills law
offices of Rudin & Richman, an entertainment law firm whose clients included
Frank Sinatra, Liza Minelli, Cher and Warner Brothers Music. He was also
Associate Editor of the Entertainment Law Reporter, for which he continues to
serve as a member of the Advisory Board. A member of the California Bar
Association, Mr. Kohn co-authored Kohn on Music Licensing, a treatise on music
industry law for lawyers, music publishers, and songwriters. He graduated from
Loyola Law School, Los Angeles and received a Bachelor of Arts degree in
Business Administration from California State University at Northridge. Mr.
Kohn is also an adjunct professor of law at Monterey College of Law, where he
teaches Corporate Law.
Gene Hoffman, Jr., a co-founder of EMusic, has been President, Chief
Executive Officer, and a Director since January 1998. From November 1996 to
December 1997, Mr. Hoffman was Director of Business Development and Director of
Interactive Marketing of Pretty Good Privacy. From October 1995 to November
1996, he was Executive Vice President of PrivNet, Inc., an Internet privacy
software company. Mr. Hoffman also worked at IBM's component facility in
Charlotte, North Carolina. From August 1993 to October 1995, Mr. Hoffman was a
student at the University of North Carolina, Chapel Hill.
Joseph H. Howell joined EMusic in April 1998 as Executive Vice President and
Chief Financial Officer. From January 1995 to April 1998, Mr. Howell was Senior
Vice President and Chief Financial Officer of Merix Corporation, a manufacturer
of multilayer printed circuit boards. From May 1988 to January 1995, Mr. Howell
served as Vice President and Controller of Borland International, Inc (now
Inprise). He also served as Inprise's acting Chief Financial Officer in 1994.
Mr. Howell received a Bachelor of Arts degree in Political Science from the
University of Michigan in 1974 and a Masters of Science in Accounting from
Eastern Michigan University in 1977.
Peter M. Astiz joined EMusic in July 1999 as Executive Vice President and
General Counsel. From October 1996 to July 1999, Mr. Astiz was a partner in
Gray Cary Ware & Freidenrich LLP, a law firm. From July 1989 until October
1996, Mr. Astiz was a partner in the law firm of Baker & McKenzie. Mr. Astiz
received a Bachelor of Science degree in Business Administration from the
University of California in 1979 and a J.D. from the University of San
Francisco in 1982.
2
<PAGE>
James Chapman joined EMusic as Vice President, Corporate Strategy in April
1999. From April 1997 to April 1999, Mr. Chapman was a Director in charge of
the Global Private Capital Group at Warburg Dillon Read LLC (formerly UBS
Securities LLC). Prior to joining UBS Securities, Mr. Chapman was President and
Founder of Ashley Capital Management, a private equity and advisory firm
focused on principal investments in emerging growth companies located in the
Pacific Northwest and Rocky Mountain States. From 1994 to 1995, Mr. Chapman was
a Partner at Jacobson Partners, a boutique merchant bank focused on middle
market buyouts and direct equity investments. From May 1990 to September 1994,
Mr. Chapman also worked as an associate in the technology and healthcare
investment banking groups of Oppenheimer & Co. and PaineWebber Incorporated.
Mr. Chapman received a B.A. in Economics in 1989 from Middlebury College.
Tor Braham, a Director since 1999, is a Managing Director and Head of
Technology Mergers & Acquisitions Department for Warburg Dillon Read, a major
investment bank. From June 1982 until November 1997, Mr. Braham was a partner
in the law firm of Wilson Sonsini Goodrich & Rosati. Mr. Braham received a
Bachelor of Science degree in English from Columbia University in 1979 and J.D.
from the New York University Law School in 1992.
Ralph Peer, II, a Director since June 1998, is Chairman and Chief Executive
Officer of peermusic, a global network of music publishing and production
companies. In addition, Mr. Peer is Vice President and Director of the National
Music Publishers' Association (U.S.A.) and the Harry Fox Agency. He is a
lifetime director and past president of the Country Music Association and a
publisher/director of ASCAP (American Society of Composers, Authors, and
Publishers). Mr. Peer is also a director of Fox Agency International
(Singapore) and a consultant to the board of MCPS (Mechanical Copyright
Protection Society, U.K.). He is a past president and a current director of
ICMP (International Confederation of Music Publishers) and in 1997 was elected
"President d'Honneur" of the Confederation.
Ed Rosenblatt, became a Director in 1999. From 1994 until his retirement in
1999, Mr. Rosenblatt served as chairman of Geffen Records. Mr. Rosenblatt
helped found Geffen Records in 1980, and served as its president and chief
operating officer until 1994. Prior to Geffen Records, Mr. Rosenblatt served as
senior vice president of sales and promotion for Warner Brothers Records. Mr.
Rosenblatt received a degree in Applied Arts from Brooklyn College in 1952.
The Board of Directors held 12 meetings during the fiscal year ended June
30, 1999 and two actions were taken by unanimous written consent during such
period. Each director attended at least 75% of the meetings held during his
tenure during the fiscal year.
Audit Committee. Tor Braham, Ralph Peer, II and Ed Rosenblatt are members of
the Audit Committee. The Audit Committee did not meet during the last fiscal
year. The Audit Committee is responsible for reviewing the internal accounting
procedures of EMusic and consulting with and reviewing the services provided by
our independent auditors.
Compensation Committee. Tor Braham, Ralph Peer, II and Ed Rosenblatt are
members of the Compensation Committee. The Compensation Committee did not meet
during the last fiscal year. The Compensation Committee is responsible for
reviewing and recommending to the Board of Directors the compensation and
benefits of executive officers of EMusic.
3
<PAGE>
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth as of September 30, 1999, certain information
with respect to the beneficial ownership of common stock by (i) all persons
known by us to beneficially own more than 5% of our outstanding common stock,
(ii) each director and director-nominee of EMusic, (iii) the persons named in
the Summary Compensation Table and (iv) all of our executive officers and
directors as a group.
<TABLE>
<CAPTION>
Number of Shares of
Beneficial Owner(1) Common Stock Owned Percent(2)
- ------------------- -------------------- ----------
<S> <C> <C>
5% Stockholders
- ---------------
Citiventure 96 Partnership, L.P.
c/o Invesco Private Capital
1166 Avenue of the Americas, Suite 2700
New York, NY 10036(3)........................ 3,333,400 9.8%
VantagePoint Venture Partners
1001 Bayhill Drive, Suite 140
San Bruno, CA 94066(4)....................... 1,686,500 5.0%
Directors and Executive Officers
- --------------------------------
Robert H. Kohn................................ 2,881,700 8.5%
Gene Hoffman, Jr.............................. 3,202,000 9.4%
Joseph H. Howell(5) 211,401 *
Peter M. Astiz................................ 216,000 *
James R. Chapman(6) 96,607 *
Tor Braham(7)................................. 46,600 *
Ralph Peer, II(8)............................. 308,900 *
Ed Rosenblatt(9).............................. 100,000 *
Executive officers and directors as a group (8
persons)(10)................................. 7,063,208 20.5%
</TABLE>
- --------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options.
Calculations of percentages of beneficial ownership assume the exercise
by only the respective named stockholders of all options for the purchase
of common stock held by such stockholder which are exercisable within 60
days of September 30, 1999. Except as otherwise indicated and subject to
applicable community property laws, the persons named in the table above
have sole voting and investment power with respect to all shares of
common stock held by them. Unless otherwise indicated, the address of
each of the listed named individuals above is, c/o EMusic.com Inc. 1991
Broadway, 2nd Floor, Redwood City, CA 94063.
(2) Percentage of beneficial ownership excludes up to 6,162,957 shares
issuable upon exercise of outstanding stock options and warrants.
(3) Represents shares owned by Invesco related partnerships as follows:
58,300 shares owned by Chancellor Private Capital Offshore Partners I,
C.V.; 624,000 shares owned by Chancellor Private Capital Offshore
Partners II, L.P.; 379,000 shares owned by Chancellor Private Capital
III, L.P.; 1,627,100 shares owned by Citiventure 96 Partnership, L.P.;
and 645,000 shares owned by Drake & Co. for the account of Citiventure
Private Participations III.
(4) Represents shares owned by VantagePoint related partnerships as follows:
3,300 shares owned by Jason Strober; 1,111,100 shares owned by
VantagePoint Communications Partners, L.P.; 16,600 shares owned by
VantagePoint Venture Advisors, LLC; and 555,500 shares owned by
VantagePoint Venture Partners 1996.
(5) Includes 175,401 shares issuable upon exercise of outstanding options.
(6) Includes 50,001 shares issuable upon exercise of outstanding options.
(7) Includes 35,000 shares issuable upon exercise of outstanding options.
(8) Includes 100,000 shares issuable upon exercise of outstanding options.
Includes 61,400 shares of common stock held by peermusic III, Ltd. which
are issuable upon conversion of shares of Series B preferred stock.
Mr. Peer disclaims beneficial ownership of the shares held by peermusic
III, Ltd. except to the extent of his pecuniary interest therein.
(9) Represents shares issuable upon exercise of outstanding options.
(10) Includes 460,408 shares issuable upon exercise of outstanding options.
4
<PAGE>
Director Compensation
Directors do not receive cash compensation for their services as directors
or members of committees of the Board of Directors, but are reimbursed for
reasonable expenses incurred in attending meetings of the Board. In May 1998,
we granted Mr. Peer a nonqualified stock option to purchase 100,000 shares of
our common stock at an exercise price of $5.00 per share. In June 1999, we
granted Messrs. Braham and Rosenblatt nonqualified stock options to purchase
35,000 and 100,000 shares of our common stock, respectively, at an exercise
price of $13.63 per share.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities ("ten percent holders"), to file
reports of ownership and changes in ownership with the SEC and the Nasdaq
National Market. Directors, executive officers, and ten percent holders are
required by SEC regulations to furnish us with copies of all Section 16(a)
forms they file.
Based solely on our review of the copies of such forms received or written
representations from certain reporting persons, we believe that, during the
year ended June 30, 1999, all filing requirements under Section 16(a)
applicable to our directors, executive officers and ten percent holders were
met except that James Chapman failed to file a Form 3 on a timely basis when
his status was changed to that of an executive officer. Such failure is in
process of being corrected.
5
<PAGE>
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with one
class elected at each annual meeting of stockholders for a three-year term.
Robert H. Kohn and Tor Braham, the two Class I directors of EMusic have been
nominated for reelection to serve a term of three years and until their
successors have been elected and qualified. It is intended that the proxy in
the form enclosed will be voted, unless otherwise indicated, for the election
of the nominees for election to Class I. If either nominee should for any
reason be unable or unwilling to serve, the proxies will be voted for the
election of such other person(s) for the office of director as the Board may
recommend in the place of such nominee.
Vote Required and Board of Directors' Recommendation
If a quorum is present and voting, the two nominees for Class I director
receiving the highest number of votes will be elected as Class I directors.
Abstentions and shares held by brokers that are present but not voted because
the brokers were prohibited from exercising discretionary authority (i.e.,
"broker non-votes") will be counted as present for purposes of determining if a
quorum is present.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR ALL NOMINEES" WITH
RESPECT TO PROPOSAL NUMBER ONE.
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation
The following table sets forth information concerning the compensation we
paid for services rendered during the fiscal years ended June 30, 1998 and 1999
by our Chief Executive Officer:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------- ------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options
- --------------------------- ---- ------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gene Hoffman, Jr., President and
Chief 1999 $82,291 -- -- 250,000
Executive Officer............... 1998 31,250 --
</TABLE>
The stock option granted to Mr. Hoffman vests ratably over a four year term.
No other executive officer received a total salary and bonus during fiscal year
1998 or 1999 in excess of $100,000.
Stock Options Granted in Fiscal Year 1999
The following table provides information regarding stock option grants made
during fiscal 1999 to Mr. Hoffman. Options may terminate before their
expiration date upon the termination of optionee's status as an employee or
upon the optionee's death or disability.
Option Grants in Fiscal Year 1999
<TABLE>
<CAPTION>
% of Total Potential Realizable Value at
Number of Options Assumed Annual Rates of
Securities Granted to Stock Price Appreciation for
Underlying Employees Exercise Option Term (2)
Options in Fiscal Price Per Expiration -----------------------------
Name Granted 1999(a)(1) Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Gene Hoffman, Jr. ...... 250,000 5.9% $13.63 6/10/09 $941,429 $2,080,312
</TABLE>
- --------
(1) Based on an aggregate of 4,216,000 shares subject to options granted in
fiscal 1999.
(2) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could
be achieved for the options if exercised at the end of the option term.
The assumed 5% and 10% rates of stock price appreciation are provided in
accordance with rules of the SEC and do not represent our estimate or
projection of the future common stock price.
7
<PAGE>
Option Exercises and Fiscal Year-End Values
There were no option exercises by Mr. Hoffman during fiscal 1999. The
following table sets forth information concerning unexercised options held as
of June 30, 1999 by Mr. Hoffman.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at 6/30/99 6/30/99
----------------------- -----------------
Name Vested Unvested Vested Unvested
- ---- --------- ------------ ------ ----------
<S> <C> <C> <C> <C>
Gene Hoffman, Jr....................... -- 250,000 -- $1,750,000
</TABLE>
We have not awarded stock appreciation rights to any employee of ours and we
do not have any multi-year incentive plans.
Change-in-Control Arrangements
1998 Stock Option Plan. Our 1998 stock option plan was approved by the Board
of Directors in March 1998 and was subsequently approved by our stockholders.
The 1998 option plan provides for the grant to employees of incentive stock
options within the meaning of section 422 of the Internal Revenue Code of 1986,
as amended, and for grants of nonstatutory stock options to employees, non-
employee directors and consultants. In the event of a change in control of
EMusic, the acquiring or successor corporation may assume or substitute for the
outstanding options granted under the 1998 option plan. The outstanding options
will terminate to the extent that such options are neither exercised nor
assumed or substituted for by the acquiring or successor corporation.
1998 Nonstatutory Stock Option Plan. Our 1998 nonstatutory stock option plan
was approved by the Board of Directors in December 1998. The nonstatutory plan
provides for the grant of nonstatutory stock options to employees (who are not
officers or directors) and consultants. The nonstatutory plan is administered
by the Board of Directors or a committee thereof. Subject to the provisions of
the nonstatutory plan, the Board or committee has the authority to select the
persons to whom options are granted and determine the terms of each option. In
the event of a change in control of EMusic, the acquiring or successor
corporation may assume or substitute for the outstanding options granted under
the nonstatutory plan. The outstanding options will terminate to the extent
that such options are neither exercised nor assumed or substituted for by the
acquiring or successor corporation.
1999 Employee Stock Purchase Plan. The purchase plan, which is intended to
qualify under section 423 of the Internal Revenue Code, is administered by the
Board of Directors or by a committee thereof. Our employees (including our
officers and employee directors) and those of any of our subsidiaries
designated by the Board of Directors for participation in the purchase plan are
eligible to participate in the purchase plan if they are customarily employed
for more than 20 hours per week and more than five months per year. In the
event of certain changes in control of EMusic, the Board of Directors may
accelerate the purchase date of the then current offering period to a date
prior to the change in control unless the acquiring or successor corporation
assumes or replaces the purchase rights outstanding under the purchase plan.
8
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We were formed on January 8, 1998 as a Delaware corporation under the name
GoodNoise Corporation. In February 1998, we issued 3,100,000 shares of common
stock to each of Robert Kohn, our Chairman of the Board, and Gene Hoffman, Jr.,
our Chief Executive Officer and a member of our board, and 900,000 shares of
common stock to Gary Culpepper, our Executive Vice President of business
affairs. All such shares were issued at $0.001 per share. Of the shares issued
to Mr. Culpepper, approximately 600,000 shares were subject to repurchase
pursuant to a restricted stock purchase agreement. As of July 15, 1999, the
restricted stock purchase agreement provides us with the right to repurchase
approximately 311,000 of these shares at a nominal price subject to ratable
vesting over three years ending February 2001.
In February 1998, we entered into an agreement to borrow $10,000 from Mr.
Kohn and $50,000 from peermusic, an entity controlled by Ralph Peer, II, one of
our directors, through the issuance of promissory notes bearing interest at
10.0% per annum, due in December 1998. On May 1, 1998, these notes were
converted into an aggregate of 150,000 shares of common stock at $0.40 per
share.
On May 11, 1998, GoodNoise Corporation, a Florida corporation, formerly
Atlantis Ventures Corporation entered into an Agreement and Plan of
Reorganization pursuant to which it acquired GoodNoise Corporation, a Delaware
corporation. In connection with such acquisition, the Florida corporation
exchanged 11,015,300 shares of its common stock for all outstanding stock of
the Delaware corporation and assumed all outstanding options of the Delaware
corporation for the purchase of an additional 2,032,550 shares of the Florida
corporation's common stock. Following such transaction, the directors and
officers of the Delaware corporation became the directors and officers of the
Florida corporation. Of the shares issued as part of such transaction,
8,555,000 shares were issued to such directors and officers. The stockholders
of the Florida corporation prior to the Merger had no affiliation with the
Delaware corporation and following the Merger ceased to be affiliates of the
Florida corporation.
On March 23, 1999, we sold shares of Series B preferred stock through
Warburg Dillon Read LLC, a placement agent. Mr. Tor Braham was a managing
director of Warburg Dillon Read LLC at this time. Mr. Braham subsequently
became a member of our board of directors on May 5, 1999. Of the 117,570 shares
of Series B preferred stock sold on March 23, 1999, we sold 614 shares to
peermusic III, Ltd, which is affiliated with Ralph Peer, II, a member of our
board of directors. We also sold 33,334 and 16,832 shares of our Series B
preferred stock to affiliates of Invesco Private Capital and VantagePoint
Venture Partners, respectively. As a result, Invesco Private Capital and
VantagePoint are deemed to own over five percent of our outstanding common
stock.
Also in connection with the sale of our Series B preferred stock, on March
23, 1999 we entered into a stockholders' agreement with Mr. Kohn and Mr.
Hoffman, as well as the purchasers of the Series B preferred stock. This
agreement provides, among other things, that the shares of our common stock
owned by Messrs. Kohn and Hoffman be held subject to a right of repurchase in
favor of EMusic. As of September 30, 1999, 2,335,916 and 2,010,598 shares of
our common stock owned by Messrs. Kohn and Hoffman, respectively, were subject
to this right of repurchase. This amount decreases by 72,726 and 62,598 shares
monthly, respectively, until March of 2002, when the right of repurchase
expires.
9
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of Messrs.
Braham, Peer and Rosenblatt. Each of these individuals is a non-employee member
of our Board of Directors. The Compensation Committee is responsible for
approving all compensation recommended by the President for our executive
officers and also approves all compensation for the President and Chief
Executive Officer of EMusic. The goal of the EMusic compensation policy is to
attract, retain and reward executive officers who contribute to our success and
to motivate these executives to achieve our business objectives. We use salary,
stock option grants and bonus compensation to meet these goals.
Compensation Policies. To date, we have been operating as a development
stage business and salaries have been set at substantial discounts to
prevailing market rates. On an ongoing basis, EMusic intends that salaries will
reflect typical salaries for similar positions in comparable companies in
EMusic's industry and geographic area. Salaries will generally be set to
reflect the applicable range for each position and will be adjusted for
historical and expected contributions of each officer to EMusic. Salaries will
be reviewed annually based on individual past performance and financial results
of EMusic. Adjustments will be made, if appropriate, to maintain
competitiveness within the industry.
Compensation Components. The Compensation Committee strongly believes that
executive compensation should be based in significant part on Emusic's
performance and intends to use stock option grants and bonus compensation to
accomplish this goal. We believe that equity ownership by executive officers
provides incentives to build stockholder value and aligns the interests of
executive officers with those of the stockholders. The size of an initial
option grant to an executive officer will generally be determined with
reference to comparable companies in EMusic's industry and geographical area,
the responsibilities and expected future contributions of the executive
officer, as well as recruitment and retention considerations. Additional option
grants to an executive officer will generally be based on Emusic's and the
individual's performance. In fiscal 1999, the Compensation Committee approved
stock option grants to three executive officers. See "STOCK OPTIONS GRANTED IN
FISCAL YEAR 1999."
Chief Executive Officer Compensation. The Compensation Committee will
annually review the performance and compensation of Gene Hoffman, Jr., the
President and Chief Executive Officer of EMusic. During fiscal 1999, Mr.
Hoffman's compensation consisted of salary and an incentive stock option grant.
To date, Mr. Hoffman's cash compensation has been significantly lower as
compared with comparable companies within the Company's industry and geographic
area. During fiscal 1999, Mr. Hoffman's compensation consisted of a base salary
of $82,291. Mr. Hoffman received an option grant of 250,000 shares in fiscal
1999.
COMPENSATION COMMITTEE
Tor Braham
Ralph Peer, II
Ed Rosenblatt
10
<PAGE>
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on our common stock with the cumulative total
returns of the Nasdaq Composite Index and the AMEX Internet Index for the
period commencing on June 30, 1998 and ending June 30, 1999.
[PERFORMANCE GRAPH APPEARS HERE]
Comparison of Cumulative Total Return from June 30, 1998 through June 30,
1999(1)
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
EMusic.com Inc. .................................... $100 $284.48
Nasdaq Composite Index ............................. $100 $141.77
AMEX Internet Index ................................ $100 $244.36
</TABLE>
- --------
(1) The Stock Performance Graph assumes $100 was invested on June 30, 1998 at
the closing sales price of our common stock and each index. No cash
dividends have been declared on our common stock. Stockholder returns over
the indicated period should not be considered indicative of future
stockholder returns.
11
<PAGE>
PROPOSAL NUMBER TWO
APPOINTMENT OF INDEPENDENT AUDITORS
Our Board of Directors has selected PricewaterhouseCoopers LLP as our
independent auditing firm for its current fiscal year ending June 30, 2000.
PricewaterhouseCoopers LLP is the successor by merger July 1998 to Coopers &
Lybrand LLP which had acted in such capacity since June 1998. A representative
of PricewaterhouseCoopers LLP will be present at the annual meeting, will be
given the opportunity to make a statement if the representative so desires and
will be available to respond to appropriate questions. In the event
ratification by the stockholders of the appointment of PricewaterhouseCoopers
LLP as our independent auditing firm is not obtained by the affirmative vote of
a majority of the stockholders in attendance or represented by proxy at the
annual meeting, the Board of Directors will reconsider such appointment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
12
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders of EMusic (i) must be received by EMusic at its offices
at 1991 Broadway, 2nd Floor, Redwood City, California 94063, not later than
July 25, 2000; and (ii) must satisfy conditions established by the Securities
and Exchange Commission for stockholder proposals to be included in EMusic's
Proxy Statement for that meeting and the other requirements contained in our
bylaws.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting
is as set forth herein. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgement.
By Order of the Board of Directors
/s/ Peter M. Astiz
Peter M. Astiz
Executive Vice President, General Counsel
and Secretary
October 26, 1999
13
<PAGE>
IMPORTANT: PLEASE DATE, SIGN AND MAIL PROMPTLY THIS PROXY IN THE
ENCLOSED RETURN ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. If you attend the meeting, you may
vote in person should you wish to do so even though you have
already sent in your Proxy.
EMUSIC.COM INC. CORPORATION
Proxy for Annual Meeting of Stockholders
Solicited by the Board of Directors
The undersigned hereby appoints Gene Hoffman, Jr., Joseph Howell and Peter M.
Astiz, and each of them, with full power of substitution to represent the
undersigned and to vote all the shares of common stock of EMusic.com Inc.
("EMusic") which the undersigned is entitled to vote at the annual meeting of
stockholders to be held in the offices of Gray Cary Ware & Freidenrich LLP,
400 Hamilton Avenue, Palo Alto, California 94301 on Friday, November 19, 1999,
at 9:00 a.m., local time, and at any adjournment thereof, (1) as hereinafter
specified upon the proposals listed below and as more particularly described in
EMusic's Proxy Statement dated October 26, 1999, receipt of which is hereby
acknowledged, and (2) in their discretion, upon such other matters as may
properly come before the meeting. The undersigned hereby acknowledges receipt
of EMusic's 1999 Annual Report to Stockholders.
A vote FOR the following proposals is recommended by the Board of Directors:
<TABLE>
<S> <C> <C>
1. Election of Directors. Robert H. Kohn Tor Braham
</TABLE>
[_] FOR ALL NOMINEES [_] WITHHOLD ALL NOMINEES
Instructions:
[_] To withhold authority for any individual nominee, place an "X" in this
box and strike a line through the nominee's name listed above.
2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors.
[_] FOR [_] AGAINST [_] ABSTAIN
The shares represented
hereby shall be voted
as specified. If no
specification is made,
such shares shall be
voted FOR proposals 1
and 2.
Dated: ________________
(Be sure to date
proxy)
-------------------
(Signature of
Stockholder)
-------------------
(Signature of
Stockholder)
Please sign your name exactly as it appears on the stock certificate
representing your shares. If signing for estates, trusts or corporations, title
or capacity should be stated. If shares are held jointly, both should sign.
